First Horizon execs talk TD deal, deposits, and the future of the bank during investor day event

First Horizon execs talk TD deal, deposits, and the future of the bank during investor day event (Courtesy of the Jacksonville Business Journal) — During First Horizon’s investor day event in Nashville on June 6, it didn’t take CEO Bryan Jordan long to address the elephant in the room.

“None of us would have expected to be here 45 days ago,” he said. “I assure you we did everything we could do to get this merger completed. And TD was unable to get regulatory approvals.”

Roughly a month had passed since First Horizon had revealed the termination of its merger agreement with the Toronto-based TD Bank Group, an announcement that had caused First Horizon’s stock price to drop precipitously and raised questions about how the institution would proceed. But even then, Jordan had expressed confidence in First Horizon’s future.

And he reiterated his optimism as he addressed investors and analysts Tuesday morning.

“There’s one thing that I believe very strongly,” he said. “In my view … the First Horizon franchise is a better, stronger, more valuable franchise through the cycle than it was … in February of 2022, when we announced the merger.”

‘Whether it’s late this year or early next’

Jordan maintained this confidence even as he acknowledged significant potential headwinds. Outside the potential rise in interest rates, he explained, “financial conditions are tightening fairly quickly.”

This is in part because of a shrinking deposit base in the banking sector. Recently, the Federal Deposit Insurance Corp. (FDIC) reported that deposits had declined $472.1 billion between the fourth quarter of 2022 and the first quarter of 2023. At First Horizon, deposits declined from $64.9 billion in Q4 2022 to $62.2 billion in Q1 2023. In Q1 2022, First Horizon’s deposits number had stood at $74.2 billion.

During an investor call on May 4, Jordan had explained that deposit numbers were returning to pre-pandemic levels, while also saying, “We have an interesting deposit environment, and that’s probably the understatement of the morning.” And at the investor day event on June 6, he noted that the size of the deposit base could continue shrinking industrywide.

“I think it’s going to drop even further as the [U.S. Treasury] refunds its balance sheet given the completion of the debt deal,” he said. “So, I think that will have the constricting effect on the financial services industry — simply because the supply of deposits is somewhat limited.”

The size of the deposit base was just one part of the economic backdrop Jordan painted, as he also believes a recession could be looming.

“I am personally not in a very dark room about a downturn. I think we will have a downturn whether it’s late this year or early next,” he said. “It does feel to me we will have some sort of recession later this year or early next. And in all likelihood, I think it will be a fairly slow and sustained recovery … simply because it’s going to be difficult to cut rates very significantly given the persistence of inflation and the need not to reignite it as we reflate the economy.”

‘Tremendous progress’

Still, Jordan maintained that First Horizon’s future is bright, despite the economic uncertainty. He touted the bank’s leadership team and employee base, while citing growth opportunities throughout its footprint.

Nashville, he explained, was a “perfect example” of where it’s significantly grown its presence. According to the Nashville Business Journal, a sister publication, First Horizon has about $6.71 billion in deposits in the area, and Jordan noted that it had 42 banking centers in Middle Tennessee. This success, he believes, is replicable.

“We’ve seen tremendous progress here. What we want to do is have the opportunity to replicate that and these tremendous markets across the South over time,” he said. “[In] places like Raleigh-Durham-Chapel Hill; Charlotte; Greenville; Atlanta; Tampa; St. Petersburg; Jacksonville; Miami; Houston; and Dallas. We have a huge opportunity to deploy capital over the long term.”

‘Are we hollowed out?’

Jordan’s assertions were buoyed by comments from Anthony Restel, First Horizon’s president of regional banking, who maintained the bank had strong employee and customer retention rates. People have wondered whether the bank had lost a slew of employees amid the TD deal, but Restel explained that this wasn’t the case.

“There’s been a lot of question. … ‘Are we hollowed out? Have we lost a lot of people?’” he said. “I’ll point you to the 99% retention in our top two tiers across the markets — what that means is 99% of the people that control our revenue, prior to TD, are still here.”

Restel also asserted that First Horizon has a strong customer retention rate. He noted, for example, that 91% of its IberiaBank clients have remained with the institution after the merger-of-equals between the banks in July 2020.

And while Jordan had described the shrinking deposit base in the industry, he, Restel, and CFO Hope Dmuchowski maintained during the investor day event that First Horizon’s deposit performance has been promising. In May, the bank added about $1.5 billion in new deposits, a number that they assert could just be the start.

“We think we will continue to perform better than we have been performing,” Dmuchowski said. “We’ve seen our marketing take off. We have … engaged bankers who are really focusing on gathering deposits now, as well as looking at the fully banked relationships.”

Some of these relationships could have been bolstered by the termination of the TD deal, Restel said.

“Believe it or not, we had clients who really didn’t want to bank with a Canadian-owned institution, and secondly, didn’t want to go through a conversion again,” he said. “So we had a few things that have helped us a little bit in terms of re-engaging our client.”

‘A pretty big step’

That’s not to say the termination of the deal didn’t have any ramifications.

When an analyst asked Jordan what role he saw mergers and acquisitions playing in First Horizon’s strategy over the next five years, Jordan quipped, “Have I shown you my scars about M&A lately?”

And though he said the bank is “not afraid to grow through M&A,” he maintained that it’s not a priority at the moment. First Horizon, he explained, has been “in merger integration mode one way or another for the past three years,” and it’s now focused on tackling priorities, affectively operating its business, and making investments in technology.

Jordan also wants to see what happens to the regulatory environment. A blockbuster acquisition or merger, he explained, wouldn’t always be worth it.

“Going across $100 billion is not just expensive, it’s extraordinarily expensive. And that doesn’t add much in terms of customer service ability or shareholder returns,” he said. “It really is a pretty big step. I want to see how the regulatory framework plays out.”

Photo courtesy of The Business Journals